Wednesday, December 31, 2014

Power Rates Increased Under IMF Agreement


By Khaleeq Kiani
ISLAMABAD, Dec 26: Under an agreement with the International Monetary Fund, the government on Friday increased power tariff by imposing 60 paisa per unit ‘equalization surcharge’ – third in as many months – on electricity rates for all distribution companies (except K-Electric) with immediate effect.

As a consequence, the existing notified tariff at Rs11.82 per unit has been increased to Rs12.43 per unit. In addition, this will have a further impact of 10 paisa per unit when charged to consumers with general sales tax.

“The federal government is pleased to notify the equalization surcharge at the rate of Rs0.60/KWh, applicable to all the consumer categories except lifeline consumers on per unit consumption in respect of ex-Wapda Distribution Companies”, said an official notification not made public.

On October 3, the government had imposed an equalization surcharge of 30 paisa per unit, followed by Rs1.50 per unit on November 3 to cover interest payments to Independent Power Producers for delayed payment by the government or its power companies.

The National Electric Power Regulatory Authority (Nepra) had been rejecting the government request for inclusion of these costs and system losses into the power tariff. Therefore, the government decided to impose surcharges under IMF compulsion.

The latest notification said the “ex-Wapda Disco shall deposit the amount of this surcharge in a Fund called the ‘Universal Obligation Fund’ to be kept in Escrow Account maintained at Central Power Purchasing Agency (CPPA) for exclusive use for discharging the liabilities of power producers”.

“The surcharge paid under this notification shall be considered as a cost incurred by a distribution company to be included in the tariff of that company as determined by National Electric Power Regulatory Authority and notified by Federal Government in the Official Gazette”, the notification went on.

Under a written agreement with the IMF early this month, finance minister had committed “to continue to use the downward trend to make further adjustments in the surcharge to close any gap (about 5 per cent) to stay within the FY2014-15 budgeted electricity subsidy of 0.7 per cent of GDP”.

As promised, the government took benefit of fuel price reduction of Rs2.97 per unit approved by the Nepra on December 19, for one month to be passed to consumers in billing month of January 2015.

Interestingly, the Nepra-approved reduction in fuel cost would automatically come to an end after one month but the equalization surcharge would remain part of the base tariff for all times to come unless power system losses were brought down to less than 10 per cent from about 19 per cent at present.

When contacted, a power ministry spokesperson declined to respond to specific questions but tried to cover it up with a vague written version. The spokesperson sadi the “NEPRA authorities have determined and notified Fuel Adjustment Charges of Rs.2.9672/unit out of which Rs2.3672/unit will be passed on to all the consumers. An amount of Re. 0.60/unit was required to pay for the power sector finances and notified as surcharge separately. The net effect to end-consumer is no increase in the rates and net reduction of Rs2.3672/unit."

On November 3 when it was holding talks with the IMF, the government had imposed another equalisation surcharge at an average rate of Rs1.5 per unit on consumers of all electricity distribution companies with retrospective effect from October 1 that would remain in force until December 31, 2015 to enable revival of $6.78 billion bailout package suspended in August.

Withdrawal of power and gas subsidies is one of the key themes of the IMF package.

Exactly a month ago on October 3, the government had imposed a 30 paisa per unit surcharge on electricity consumers.

Under the Nepra law, the government should have reduced consumer tariff by Rs1.5 per unit in April this year but it has been delaying passing on the benefit to consumers.

Nepra had completed the tariff determination process for nine Discos in February and March this year based on revenue requirements and efficiency standards for the 2013-14 financial year by reducing prevailing tariff by Rs1.5 per unit.

A ministry official said the government and its Discos had been fighting a legal battle for almost eight months to prevail upon Nepra to provide relief to distribution companies, but had to exercise its “sovereign powers to impose surcharges” on refusal by the regulator to entertain requests for lenient efficiency standards. (Ends)